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Merchant generators in Pennsylvania with little or no on-site load are boosting electricity rates for other businesses because of current net metering rules, according to the state’s top utility regulator, and a member of the state House of Representatives soon intends to introduce a legislative fix.

Rising demand, grid constraints and higher prices have prompted Rep. Elizabeth Fielder (D) to ask colleagues to co-sponsor an effort to modernize the state’s net metering framework.

A spokeswoman for Fiedler said bill language and a timeline for legislative action might be available this month.

PPL Electric announced a settlement on March 13 that locks in the net metering compensation for customers both with and without their own generation at the same rate until 2041.

PPL, the distributor with the most customer generators in the state, said the proposed settlement will have a process by which some of them shall be grandfathered at an existing default service rate for of 10 years.

The Pennsylvania Public Utility Commission must approve the settlement.

Net metering is the difference between power supplied by a utility and that generated by a customer generator when the customer’s output offsets some of its electricity requirements.

Pennsylvania allows customer generators to sell energy back to the grid at full retail value, which the state utility commission has interpreted as the distributor’s price-to-compare.

“Unfortunately, over time these net metering rules have been used in ways that were never intended when the law was enacted,” Stephen DeFrank, chairman of the commission, told the state House Energy Committee on March 2.

The commission supports updates to net metering that would continue to foster true end-user net metering customers while preventing merchant generators from receiving excessive compensation at the expense of other customers.

Among most utilities, large net-metering generators are in a business or small commercial rate class, so the cost from purchasing their excess net-metered power is passed along to all the other customers in that class.

Net metering was not intended to serve as a revenue mechanism for facilities whose output is sold entirely back to the grid at the distributor’s price-to-compare, DeFrank said.

The difference between that cost and wholesale market rates – currently an average upcharge of approximately 47% – creates a “cost cliff” for small businesses and other utility customers, DeFrank added.

A 2004 law, the Alternative Energy Portfolio Standards Act (AEPS), required Pennsylvania utilities to source 18% of their usage and generation from alternative sources by 2021. To provide these supplies, the utility commission wrote net metering rules for distributed energy resources, but the rules faced legal challenges.

DeFrank explained that a result of a 2020 ruling by the Pennsylvania Supreme Court was that solar facilities up to 3 MW with little or no on-site electric load are allowed to qualify for full retail-rate net metering compensation.

Across a group of ten distribution companies, net metering customer capacity rose by at least 22% in each of the three years preceding May 31, 2025, according to a commission report. Solar photovoltaic facilities account for 94% of customer generator interconnected capacity.

Statewide, there were 87,980 customer generators with net metering as of May 31, 2025, with more than 1.18 GW of nameplate capacity.

For the 2025 reporting year, 20,202 interconnection requests were received in 10 distributor service territories, a 9% increase from 2024.

PPL Electric Utilities had 28,819 customer generators and PECO had 23,528, with the rest spread among eight other distributors.

It appears that a small number of facilities get much of the benefits.

DeFrank testified that the annualized cost of excess retail rates totals approximately $6.4 million per year from thirty-six facilities. Based on projects in the interconnection process, that amount is projected to exceed $90 million per year by 2027.

With more than 2,100 interconnection requests pending statewide, the costs could exceed $700 million annually under existing rules.

A commission report for the two years ending May 31, 2024, said that allowing net metering at a single 3 MW facility with no load may produce a yearly net gain of $500,000 over and above wholesale prices.

PPL said it proposed its rate settlement “because it is projecting a substantial increase in the number of customer generators participating in net metering who do not have independent load to offset their electric usage.”

PPL said that annual net metering cash-outs for the small commercial and industrial customer class totaled approximately $11 million as of March 31, 2025.

Total net metering expense for no-load customer generators in that rate class were forecast by the utility to increase to nearly $800 million in 2029, even assuming a 36% cancellation rate by these customers.

The proposed PPL tariff settlement is supported by the Pennsylvania Utility Law Project, state Office of Consumer Advocate and the state Office of Small Business Advocate.

Walmart expressed opposition to the settlement, along with groups called the Customer Generator Coalition, Professional Dairy Managers of Pennsylvania and Joint Solar Advocates.

One customer testified to the state House Energy Committee this month that it is about to be reclassified by PPL as a large customer instead of a small one, resulting in its rate of net metering payments being halved.

Shrack Farms, which operates a dairy digester in Loganton that produces electricity from cow waste methane, offsets 100% of its electric consumption at that meter. Biogas from the digester is piped to a generator with a capacity of 425 kW.

“We are not able to operate in our current sustainable mode without the small customer price to compare, and I believe that under the AEPS Act, we are entitled to it,” said James Harbach, a partner at Shrack Farms.

Developments in the PJM Interconnect also may alter economic outcomes for resources subject to net metering tariffs.

PJM submitted a tariff revision at the Federal Energy Regulatory Commission in December proposing to create a new participation model called economic load response regulation only participants.

The model would permit economic demand response resources to sell regulation power onto the grid without the rules that govern such injections, according to PJM’s Independent Market Monitor.

The market monitor called this an inappropriate and unsupported form of participation for demand resources, and a fundamental change to PJM’s demand response model, specifically designed for resources that do not inject power onto the grid.

The proposal “creates discriminatory preferences for a small group of potential participants, who are on retail net energy metering tariffs and want to participate in the regulation market,” the market monitor said in its annual report for 2025.

The market monitor recommended that net metering resources be prohibited from participating in wholesale ancillary services markets if they are compensated for the service at the retail level.